What's a Franchise Disclosure Document?

What's a Franchise Disclosure Document?

Premium Service Brands explores everything you need to know about the franchise disclosure document, including how to read it, the essential parts for potential franchisees, and more.

FDD Basics

A franchise disclosure document (FDD) is a legal document franchisors provide to potential franchisees before they sign a franchise agreement. It provides critical information about the franchise system and the franchise agreement, and it enables a potential entrepreneur to make an informed decision about whether to invest in the franchise.

The Federal Trade Commission began requiring franchises to file a Uniform Franchise Offering Circular (UFOC) in 1979 to regulate the franchise industry and hamper unethical behavior. At the time, many franchisees were unhappy about encroachment and requirements to purchase supplies from the franchisor. The UFOC forced franchisors to disclose information to eliminate surprises for new business owners. The UFOC was replaced by the FDD in 2007 and is largely the same.

The franchise disclosure document typically includes information about the franchisor's business background and history, the costs associated with purchasing and operating the franchise, the terms of the franchise agreement, and other important information about the franchise system.

The FDD is public record in the U.S. and available online. A franchise brand is required to share its FDD with potential franchisees, and you can request a copy of the FDD from the franchisor

directly. Most franchisors deliver a copy of the FDD after you express interest on the company’s website by filling out an online form.

Key FDD Items

Taking a deep dive into a company’s franchise disclosure document can be overwhelming for potential entrepreneurs who are new to the franchise industry. The FDD consists of 23 items and the franchise agreement. While the entire document is important, you should focus on certain key sections to get a solid grasp of the brand.

When you read the FDD, pay special attention to the wording. Terms like “policy of the franchisor” means things are subject to change. It’s important to review the FDD with a lawyer and a CPA to cover all your bases and make an informed decision.

The parts of the FDD that are most helpful will depend on your specific situation and the franchise system you are considering, but some key sections to review include:

  1. Item 1: The Franchisor: Here you’ll find important background information about the franchisor and any related companies. Item 1 offers insight into the experience of the company’s executive team and the evolution of the brand. Pursuing an opportunity with an established brand is less risky. However, some business owners target emerging brands to have access to more territories, flexibility, and a one-on-one relationship with the founders.
  2. Item 7: Estimated Initial Investment: Item 7 provides an estimate of the total costs involved in opening a franchise, including the initial franchise fee, real estate costs, equipment charges, and other expenses. Understanding the initial investment will allow you to make financial projections and generate an accurate business plan. In addition to reviewing Item 7, it’s important to talk to existing franchisees for further insights and gauge the amount of working capital you’ll need to get started.
  3. Item 12: Territory: This section provides information about the geographic area in which the franchisee is allowed to operate the business. It gives owners details about the potential number of customers they can serve.
  4. Item 17: Renewal, Termination, Transfer, and Dispute Resolution: It’s important to have a long-term plan. Your business needs to meet both your financial and lifestyle goals. Do you want your franchise to be a legacy for your family, or do you want to sell it within the next 10 years to boost your retirement savings? This section of the FDD details the length of the franchise agreement, the conditions for renewal or termination, and the stipulations for transferring ownership of the franchise to make sure it fits your needs.
  5. Item 19: Financial Performance Representations: Take note that franchisors are not required to include this Item. If it is included, you’ll find information about the financial performance of existing franchise locations from the previous year. Financial performance representations can give you a better understanding of the financial health of the brand.
  6. Item 20: Outlets and Franchisee Information: Here you’ll find a list of current and former franchisees, which can be a valuable resource for contacting existing franchisees and getting their perspective on the franchise system.

Home Services Franchise Leader

Premium Service Brands is an industry leader in home services franchises that is focused on expansion. We signed 92 franchise deals in 2022 and surpassed 1,000 franchise locations this year. We help people achieve their financial and lifestyle goals and fulfill their dream of entrepreneurship. We believe in having fun, being healthy, and living well and are seeking franchisees who share our commitment to customer service excellence and passion for their work.

Benefits of Multiple Brands

Our multi-brand roster includes 360˚ Painting, ProLift Garage Doors, Maid Right, Kitchen Wise & Closet Wise, Renew Crew, Rubbish Works Junk Removal, The Grout Medic, House Doctors, and RooterMan. To help facilitate growth, Premium Service Brands received funding from Susquehanna Private Capital LLC, a private equity firm, in 2021. The company plans to continue to strengthen its presence in its core lines of business while expanding its offerings in the home services industry.

Multiple brands give our franchise owners access to complementary home services to scale their businesses. We are pilot-testing a tech solution to help customers connect to a central platform for all of their home service needs. It provides homeowners with a network of quality local businesses and owners with potential new customers. We provide incentives to help franchise owners acquire multiple brands.

Our FDD provides detailed information about every brand in our system and our franchise team is ready to answer any questions about the franchise agreement.

Home Services Industry Outlook Strong

High new home costs and hybrid work schedules are generating rapid gains for businesses in the home services industry. The home improvement market grew 26% in 2022, reaching $475 billion, according to Angi. Rising home equity is giving people a cushion to make home improvements. The average household gained $80,000 in home equity over the last two years and spent $10,341 on home improvement in 2022.

Learn More About Premium Service Brands

Learn more about owning a home services franchise with Premium Service Brands. To receive a copy of the franchise disclosure document for any of our brands, or connect with someone from our franchise team, fill out the form to get started exploring business opportunities in the home services industry.